All-cash home buyers not as common as they seem in Bay Area

A woman walks past RE/MAX Holdings Inc. signage while arriving for an open house in Redondo Beach, Calif., in February 2015.

A woman walks past RE/MAX Holdings Inc. signage while arriving for...

If you’re in the market for a home, it might seem like cash is king. But the percentage of homes being purchased without a mortgage in the Bay Area has fallen in the past few years and is much smaller here than in most parts of the country.

Seven of the top 10 metro area for all-cash purchases in the first quarter of this year were in Florida, according to Zillow. Six of the 10 metros with the smallest share of cash buyers were in California, including the San Francisco and San Jose areas.

“Markets like Florida are simply cheaper markets,” said Svenja Gudell, Zillow’s chief economist. It’s much easier to come up with enough cash to buy a $160,000 to $180,000 home in Florida than a $1.1 million home in California, she said.

Demographics also play a role. In Florida, a larger percentage of buyers are retirees who have savings or cash from the sale of a previous home. “You have a lot of folks moving to California who are much less likely to buy with all cash,” she added.

Miami-Fort Lauderdale was the cash capital of the country in the first quarter, with 59 percent of homes being purchased without a mortgage, according to Zillow.

The San Francisco and San Jose metro areas ranked ninth and sixth from the bottom, with all-cash deals representing only 28 and 24 percent of purchases, respectively. All-cash sales in San Francisco peaked at 36 percent in the first quarter of 2010, Zillow said.

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More recent data from RealtyTrac show the same trend. In October, about 29 percent of homes purchased nationwide didn’t have a mortgage. Twelve of the top 20 places for all-cash deals were in Florida, led by Homosassa Springs at 61.4 percent.

In San Francisco-Oakland-Hayward, only 20.6 percent of October purchases were all-cash, and in San Jose-Sunnyvale this number was 22 percent.

To make their offers more competitive, some buyers — especially in the Bay Area — make an all-cash offer, often with help from family members. Then, shortly after the purchase, they take out a mortgage.

RealtyTrac analyzed almost 1.5 million homes nationwide purchased with all cash in 2013 and 2014 and found that almost 8 percent subsequently had a mortgage taken out. On average, the loan was recorded about 6½ months after the purchase.

The counties with the highest percentage of post-purchase mortgages were San Francisco (24 percent), followed by Denver County, Colo. (21 percent), Marin (20 percent), and San Mateo and Santa Clara counties (19 percent each).

RealtyTrac spokeswoman Ginny Walker said cash deals are concentrated in markets with foreign buyers, such as Miami, and in markets with a lot of investor activity, such as Greenville, Tenn. “You have the opportunity for investors to come in, flip it and make money,” she said.

California also has a lot of foreign buyers, but prices here make it much harder for them to get a home without a loan. And rising prices have taken much of the profit out of flipping. “In Orange County, flippers who have been in the market for years are getting out,” Walker said.

In the Bay Area, “It’s hard to argue you are getting a great deal. But you can still get a good deal if you are converting (a home) into a rental because rents are so high,” Gudell said.

Many buyers and agents have the impression that cash deals are much more prevalent. Realtor Radhi Ahern estimates that 40 to 42 percent of the deals she sees in San Francisco and Marin are all-cash. If they are not cash, they are not contingent on the buyer getting a loan, she said. “I’m seeing very, very few buyers who are writing offers or having offers successfully accepted if they have a financing contingency.”

Agents and buyers might not see the complete picture, Walker said. RealtyTrac gets its numbers from county recorders’ offices and includes a fair number of homes that were sold without being advertised on a multiple listing service.

Nationwide, cash deals were at their highest in 2010 through 2012, when institutional investors were scooping up foreclosed and depressed properties. “We had occasions where appraisals didn’t meet market prices,” Gudell said. Buyers who needed a mortgage couldn’t get those homes. An investor buying with cash could. “They drove the turnaround” in the real estate market, she said.